2018年-ECB欧洲央行_Risk_sharing_in_the_euro_area_14页_277kb

3 Risk Sharing in the Euro Area Summary

Core Content

This article examines the concept of risk sharing in the context of the euro area and the United States, with a focus on how economic shocks to GDP growth are absorbed through various mechanisms. It highlights the differences in the effectiveness of risk sharing between these two regions and discusses the implications for the European Economic and Monetary Union (EMU).

Main Points

• Risk Sharing Definition: Risk sharing refers to the process by which economic agents (households, firms, governments) smooth out consumption and output fluctuations across countries or regions, thereby insuring themselves against adverse economic events.

• Empirical Findings:

  • In the euro area, around 80% of a shock to country-specific GDP growth remains unsmoothed, leading to significant cross-country differences in consumption growth.
  • In the United States, at most 40% of a shock to state-specific GDP is unsmoothed, indicating a more effective risk sharing mechanism.

• Risk Sharing Channels:

  • Capital Channel: Dominates risk sharing in both regions. In the US, it accounts for 30–35% of shock smoothing, contributing more than half of overall risk sharing. In the euro area, it explains the bulk of cross-border risk sharing, though its contribution is generally lower than in the US.
  • Credit Channel: In the US, it accounts for about 20% of risk sharing. In the euro area, it has a negative contribution, implying that borrowing occurs in good times and repayment in bad times, which amplifies consumption volatility.
  • Fiscal Channel: In the US, it contributes 10–15% to shock smoothing, supported by federal transfers. In the euro area, its contribution is negligible, due to the absence of a central fiscal stabilisation function.

• Institutional Differences:

  • The US has a well-developed fiscal and financial integration, with a federal system that allows for cross-state transfers and capital market integration.
  • The euro area lacks a central fiscal stabilisation mechanism, which limits its ability to smooth shocks through public channels.

• Role of European Institutions:

  • European institutions such as the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) have played a positive role in risk sharing, especially during the recent crisis.
  • These mechanisms provide ex-post financial support to countries facing economic shocks, helping to maintain public expenditure and private consumption.

• Policy Implications:

  • The article references the Five Presidents' Report, which calls for greater economic convergence and resilience in the euro area.
  • It stresses the need for structural reforms to improve economic resilience, reduce vulnerabilities in banking and public finances, and enhance financial integration.
  • A central fiscal stabilisation function is suggested to improve the euro area's capacity to share risks effectively.

Key Information

• The capital channel is the most important for risk sharing in the euro area, but its effectiveness is lower than in the US.
• The credit channel in the euro area has a negative effect, which exacerbates consumption volatility.
• The fiscal channel is underdeveloped in the euro area due to the lack of a unified fiscal policy.
• The Five Presidents' Report highlights the need for greater convergence and shock absorption capacity in the euro area.
• European institutions have contributed to risk sharing through financial assistance, particularly during the Great Recession.

Comparison with the United States

Conclusion

The euro area's risk sharing mechanisms are less effective than those in the US, primarily due to the lack of a central fiscal stabilisation function and underdeveloped financial integration. While the capital channel is the main driver of risk sharing in the euro area, the credit channel has a detrimental effect, and the fiscal channel is largely absent. The article advocates for institutional reforms, including the development of a central fiscal stabilisation function, to enhance the euro area's resilience to macroeconomic shocks. It also highlights the positive role of European institutions in improving risk sharing, especially during times of crisis.